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Wednesday, 15 April 2009

Sukuk to revive in 6 months: StanChart

DUBAI (Reuters) - The market for Islamic sukuk is set to revive in six months with sovereign and corporate issuers raising at least $10 billion in 2009, the chief executive of Standard Chartered Bank Saadiq said on Wednesday.

Issuances of sukuk, the Islamic alternative to conventional bonds, would fall from about $15 billion last year but still demonstrate strong growth potential, said Chief Executive of Standard Chartered Saadiq, Afaq Khan.

"I think it will come back in the next six months or so," Khan told the Reuters Islamic Banking and Finance Summit in Dubai as Indonesia prepared to sell its first Islamic bond.

"Ourselves and two others are leading the initiative. We expect it to close by late next week, depending on markets," Khan said.

Islamic debt issuance globally slowed sharply last year amid a worsening outlook for the world economy and as liquidity dried up because banks cut lending.

New Islamic bond issuance fell by two-thirds to a three-year low in 2008, with sales in the key Malaysian market dropping 78 percent, according to the Islamic Finance Information Service, which tracks industry data.

Still, interest has not disappeared, Khan told the summit, saying Standard Chartered was in ongoing talks with many potential issuers.

"We are seeing a broader spectrum of issuers talking to us and across the markets," Khan said. "Financial institutions are looking, sovereigns are looking, corporates who have proven track records are actively looking."

Bahrain said on Wednesday it would issue a $500 million sukuk on May 27, although Abu Dhabi and Qatar have opted to issue conventional bonds in the last month.

COMING BACK TO MARKET

Assets in the Islamic finance industry are worth between $750 billion and $900 billion, Khan said, adding the industry was still growing between 15-20 percent per year.

Conservative lending principles have barred Islamic lenders from risky subprime financing, but the sector has been hit, albeit to a lesser degree than conventional banks.

"If you compare apples to apples and one is Islamic and one is conventional, I would say that Islamic would be better off or equal to conventional," Khan said of the impact of the global financial crisis.

Islamic syndications in 2009 would be "definitely more than sukuk," he added.

Companies were likely to come back to market after reviewing their business plans to adjust to the global economic slowdown and Standard Chartered is continuing to talk with sovereign issuers, he said.

"We have lots of leads, but some of our customers for good reason say they are revisiting their business plans, but the conversations are ongoing with all of the customers," Khan said.

"As the corporate issuers are able to review their business plans and reassess their capital needs, they will come back to the market and tap the source of Islamic liquidity that comes in this space."

Demand from the world's 1.3 billion Muslims for investments that comply with their beliefs has soared, with some estimates seeing assets growing to $1.6 trillion by 2012.